DraftKings Reaches $10 Million Settlement in NFT Class Action Lawsuit

DraftKings has agreed to a $10 million settlement to resolve a class action lawsuit concerning its now-defunct NFT marketplace. The lawsuit, initiated by lead plaintiff Justin Dufoe, alleged that the NFTs sold by DraftKings were unregistered securities under U.S. law, violating federal regulations.

Key Takeaways

• DraftKings will pay $10 million to settle claims regarding its NFT marketplace.

• The lawsuit claimed that DraftKings' NFTs were unregistered securities.

• The settlement will benefit approximately 175,000 class members.

• Legal fees and administrative costs will be covered by the settlement fund.

Background of the Lawsuit

The class action lawsuit was filed in March 2023 by Justin Dufoe, who claimed to have lost $14,000 due to the depreciation of DraftKings NFTs. The suit argued that the NFTs constituted investment contracts under the Howey Test, a legal standard used to determine whether certain transactions qualify as securities.

DraftKings attempted to dismiss the lawsuit in September 2023, asserting that its NFTs did not meet the criteria for securities. However, U.S. District Judge Denise Casper denied this motion in July 2024, ruling that the NFTs could indeed be classified as securities. Following this ruling, DraftKings shut down its NFT marketplace, citing legal developments as the reason for the closure.

Settlement Details

The $10 million settlement will be distributed among class members who purchased, held, or sold NFTs on DraftKings between August 11, 2021, and the judgment date. The settlement fund will also cover:

• Legal Fees: Up to one-third of the total settlement amount.

• Administrative Costs: Capped at $300,000 (approximately 3% of the total fund).

• Service Award: Dufoe is seeking a $50,000 award for his efforts in the case.

Implications for DraftKings and the NFT Market

This settlement marks a significant moment for DraftKings, which has faced increasing scrutiny over its NFT offerings. The company previously settled a separate lawsuit with the NFL Players Association regarding the use of player likenesses in its NFTs.

The legal challenges surrounding DraftKings' NFT marketplace reflect a broader trend of regulatory scrutiny in the NFT space. As courts increasingly treat certain NFTs as securities, companies in the digital asset sector must navigate complex compliance issues to avoid similar legal battles.

Conclusion

The DraftKings settlement serves as a cautionary tale for NFT platforms, highlighting the potential legal risks associated with unregistered securities. As the regulatory landscape continues to evolve, businesses must ensure that their digital assets comply with existing laws to mitigate the risk of costly litigation and reputational damage.

Sources

• DraftKings agrees to $10 million settlement in NFT class-action lawsuit, resolving claims over unregistered securities, Yogonet.

• DraftKings Agrees to Settle NFT Class Action Suit for $10M, Decrypt.

• NFLPA, DraftKings Agree $10 Million NFT Settlement, Ministry of Sport.

• DraftKings Settles $10M Class-Action Lawsuit Over NFT Marketplace, Lawyer Monthly.

• DraftKings Settles $10M NFT Class Action Over Securities Allegations, World Casino News.